Will Britain finally tax the wealthy? Historic if it does, predictable if it doesn’t

What measures British finance minister (Chancellor of the Exchequer) Rachel Reeves is contemplating to tax the wealthy will be known on Wednesday (November 26), when she presents the budget. The speculation has already prompted Indian-origin billionaire Lakshmi Niwas Mittal to declare that he will shift to Dubai. Among the probable proposals are higher taxes on wealth and a hike in taxes on capital gains and other income sources.

If she imposes a direct tax on wealth or significantly raises taxes on the wealthy’s other sources of income that would be a historic step. Currently, the UK does not have a standalone wealth tax, though there are taxes on inheritance and capital gains assets. One possibility is of 2 per cent tax on wealth over £10m, as economists demand (more of it later).

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Here is a caution. The UK controls a large number of offshore jurisdictions, better known as tax havens or zero or near-zero-tax jurisdictions, which allow wealth and income to be squirreled away by individuals and corporations alike without paying tax.

The UK spider’s web of offshore jurisdictions

The Tax Justice Network (TJN), an international network fighting tax evasion, wrote in its November 2024 report about corporate tax evasion: “The UK and its dependent territories (aka the UK’s “second empire”) are responsible for 23 per cent of the corporate tax losses. The “axis of tax avoidance” (the UK and its second empire, plus the Netherlands, Luxembourg and Switzerland) are together responsible for 33 per cent. In total, OECD member countries and their dependencies account for more than 6 of every ten dollars lost.”

The report further said: “At the centre of the web sits the City of London, where corporations can shift their profits after rerouting them via the satellite jurisdictions in order to underpay tax elsewhere. The UK retains full powers to impose or veto law-making in these dependencies, and the ultimate power to appoint key government officials still rests with the British Crown.”

In its 2020 report, the TJN had identified “the UK spider’s web” of “secrecy jurisdictions” (tax havens) to include British Overseas Territories and Crown Dependencies such as the Cayman Islands, British Virgin Islands, Guernsey, Jersey, Gibraltar, Bermuda, the Isle of Man, Anguilla, Turks and Caicos Islands and Montserrat.”

This is also the reason why globally the most powerful group of countries, the OECD-G20 and their over 100 associate members, have failed to check tax evasion for more than a decade, through their 2012 Base Erosion and Profit Shifting (BEPS) initiative, which has over 145 countries and jurisdictions as members and associate members, including India.

The TJN lists 70 tax havens in its latest “Corporate Tax Haven Index” spread across the world, the top three of which come under the “The UK spider’s web” – British Virgin Islands, Cayman Islands, Bermuda.

These tax havens are used, often legally, by individuals and corporations to avoid taxes. They route money through shell companies and multilayered corporate structures that obscure the real owners, aided by global banks and major audit and consulting firms. At the centre of tax evasion is a regressive global financial order that favours the wealthy.

12 pc of global GDP in offshore accounts

According to the Global Tax Evasion Report 2024 of the EU Tax Observatory (independent research lab at the Paris School of Economics), $12 trillion in financial wealth or 12 per cent of global GDP, was held offshore “by households” at the end of 2022 – excluding real assets such as art, gold, yachts, or real estate.

The TJN’s 2024 report mentioned earlier says, the “combined costs” of cross-border tax abuse by MNCs and individuals with “undeclared assets” in offshore accounts stood at $492 billion; MNCs are shifting $1.42 trillion of profit into tax havens a year, causing governments around the world to lose $348 billion a year in direct tax revenue.

The BEPS update of May 24, 2024, says tax evasion is costing countries $100-240 billion in “lost revenue annually” – equivalent to 4-10 per cent of global corporate income tax revenue, with a caveat that “although some BEPS schemes are illegal, most are not”.

Cost of not taxing wealth

The cost of tax evasion by the wealthy is apparent – loss of tax revenues needed to fund developmental activities. The Labour-led UK government needs to raise £30 billion a year ($40.3 billion) in extra revenue, and hence, the prospect of taxing the wealthy.

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But there are other costs too, which will be clear soon.

Joseph Stiglitz-led expert committee in its report to the G20 leaders at this month’s summit in South Africa flagged a dramatic rise in inequality that “undermines both democracy and economic progress”:

• “83% of all countries, accounting for 90% of the world’s population, meet the World Bank’s definition of high inequality. Countries with high inequality are seven times more likely to experience democratic decline than more equal countries.”

• “According to data from the World Inequality Lab, the richest 1% have captured 41% of new wealth since the year 2000, while the bottom 50% of humanity have increased their wealth by just 1%.”

The committee called for an independent global panel to “monitor trends and assess its drivers and consequences and evaluate alternative policies for addressing it, to inform governments, policy makers, and the international community”.

Gabriel Zucman, in his 2024 report to the G20 leaders at the Brazil summit, had said, “Billionaires have relatively low effective tax rates”. He provided a graph – reproduced below – to show how low the average tax rate (considering all taxes) is for the billionaires vis-à-vis the working class, middle-class and even the top 1 per cent in Italy, France, the Netherlands and the US. In the graph, these segments are presented from left to right, with billionaires at the extreme right.

Zucman proposed a 2% tax on billionaires’ wealth to ensure they are effectively taxed, boost social trust and cohesion, and fund public goods and services — potentially raising $200–250 billion a year. This is the same 2% wealth tax that Thomas Piketty has been advocating for years.

All three economists named above (Stiglitz, Zucman and Piketty) are capitalists and liberals – not Marxists.

No takers for 15 pc global minimum tax on corporations

The other proposal against tax evasion has been a global minimum tax on MNCs. Former US President Joe Biden proposed a 15% on MNCs with annual revenue of over 750 million euros in 2021. It was endorsed by about 140 members and associate members of the BEPS, including India, and it became BEPS’s Pillar Two goal. But that didn’t translate into reality.

Subsequently, on January 20, 2025, his successor, Donald Trump, tripped it; he issued an executive order hours after returning to the White House, pulling the US out of it.

Indian inequality among the highest

India may have endorsed the 15 per cent global minimum tax, but that has never been its agenda. It doesn’t intend to tax either the wealthy or the rich corporations.

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In fact, the government abolished the wealth tax in 2015, slashed corporate tax rates in 2019, and, in December 2024, Chief Economic Advisor Anantha V Nageswaran warned that taxing billionaires could trigger capital flight, a statement he made just as Piketty was in India advocating a billionaire tax (a 2% levy on assets above ₹10 crore and a 33% inheritance tax on property at similar levels).

Piketty argued that such a tax is necessary because the share of income held by India’s top 1% has surpassed that of their counterparts in the US and Brazil. In The Rise of Billionaire Raj (2024), which he co-authored, he wrote that India is "now more unequal than the British Raj." The book notes that by 2022–23, the income and wealth shares of the top 1%, 22.6% and 40.1% respectively, were at their highest levels in history, and that “India’s top 1% income share is among the very highest in the world.”